New home sales at 11-year low led by big drop in Victoria: HIA

There appears to be no relief in sight for residential builders, with new home sales declining by 7.3% in January, according to the latest HIA - JELD-WEN New Home Sales report. 

CommSec economist Savanth Sebastian says new home sales have slumped to their lowest levels in more than 11 years and the lack of activity in the home building sector does not bode well for a raft of businesses. 

“While the Reserve Bank doesn’t seem in a rush to cut rates, the ongoing downturn in the residential building market certainly keeps another rate cut on the table,” Sebastian says. 

A graph prepared by the HIA shows that new home sales have been in decline since about May 2010 (there was a brief modest recovery from March 2011 to May 2011), with current dwelling sales volumes around half of what they were three years ago.

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Detached house sales fell by 7.4% in January and eased by 0.5% over the three months to January 2012. 

Detached house sales are down 11.9% compared with the three months to January 2011. 

The more volatile apartment market partially reversed its big jump of December 2011 by falling by 6.3% in January this year. 

Multi-unit sales are down 14.1% over the January quarter to be down by a substantial 25.1% when compared with the three months to January 2011. 

“A sharp decline of 19.6% in detached house sales in Victoria weighed on the overall January result,” says HIA chief economist Harley Dale. 

“Nevertheless, there were also declines in detached house sales in New South Wales and South Australia in the first month of 2012, so the overall update is a weak one.” 

“Victoria for a long time propped up new home building in Australia, and now the reverse is occurring,” says Dale. 

According to Dale, the latest new housing data indicates that the interest rate cuts of late 2011 were insufficient to generate a sustained improvement in new home building conditions and highlights “the inappropriateness of the rise in interest rates” in February. 

“New home sales, along with other leading housing indicators, are showing that other large markets in Australia are not filling the void in 2011-12.” 

“However, there is an upside given the current weak new home building environment. Now is a very good time to be building a new home for those who are financially set to take such a decision,” he says. 

Dale repeated the HIA’s demand for federal and state governments to “embark on policy reform to reduce the excessive and inefficient taxation of the new home building sector”. 

“Such reform would embolden households to engage in building a home while enhancing economic activity, efficiency, and productivity. It’s a no-brainer.” 

The HIA report is based on a survey of Australia’s 100 largest builders.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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